PARAMOUNT POWDERS (U.K.) LIMITED v TARLOCHAN SINGH BADYAL & Ors

A later claim is not automatically abusive merely because it could have been brought in earlier proceedings or because the claimant failed to comply with the Aldi guidelines. The court must make a broad, merits-based assessment of all the circumstances, balancing public and private interests and asking whether the later claim misuses the court’s process. Abuse will rarely be found without unjust harassment or oppression. The character of the earlier proceedings, the parties, the relief sought, funding difficulties, undertakings restricting litigation, the likely effect of joining the claims, and the risk of prejudice or inconsistent judgments are relevant. Unfair prejudice proceedings may properly be separated from substantive claims belonging to the company. The burden of establishing abuse remains on the applicant.

Paramount Powders (U.K.) Limited brought claims against a former director, his son and a competing company for breach of fiduciary duty, dishonest assistance and unlawful means conspiracy. The claims relied substantially on findings made in earlier partnership and unfair prejudice proceedings brought by the former director, in which the company had been a nominal respondent. The earlier proceedings established that the former director had been involved in setting up and funding the competitor, but did not adjudicate the company’s claim for damages or determine its loss.

The former director and the competing company applied under CPR Part 3, r 3.4(2)(b) to strike out the claim as an abuse of process. The central issue was whether the company’s failure to bring its substantive claims in the earlier shareholder litigation, and its failure to raise the possibility of those claims with the court, made the later proceedings abusive.

1. Applications dismissed. The claimant’s proceedings were not an abuse of process and were permitted to continue.
2. The court applied the broad, merits-based approach in Johnson v Gore Wood & Co [2002] 2 AC 1. The fact that a claim could have been brought earlier, or should ideally have been brought earlier, did not make the later claim automatically abusive. The burden remained on the applicants to establish misuse of the court’s process.
3. The claimant had procedurally been able to bring its claim within the earlier unfair prejudice proceedings. The majority shareholders had the relevant knowledge, and there was substantial factual overlap. Nevertheless, the earlier proceedings concerned a shareholder dispute, the company was only a nominal respondent, and the company’s loss had not been adjudicated.
4. The Aldi guidelines were treated as applicable in principle, but failure to comply with them did not mandate strike-out. Applying Otkritie Capital International Ltd v Threadneedle Asset Management Ltd [2017] EWCA Civ 274, the court considered the seriousness and practical consequences of the non-compliance. It was unlikely that the earlier court would have required the company’s claim to be tried alongside the shareholder dispute, because joinder would have increased complexity, delay and cost.
5. The nature of unfair prejudice petitions was important. Consistently with Taylor Goodchild Ltd v Scott Taylor [2021] EWCA Civ 1135, it was not obvious that substantive company claims should be pursued within the petition. The company had rational reasons for deferring its claim, including the relief sought by the former director, restrictions imposed by undertakings concerning legal expenditure, limited liquidity and the need to assess its loss.
6. The former director had not shown unjust harassment. He had chosen to bring the earlier proceedings, had sought undertakings which impeded the company’s claim, and remained free to limit the extent to which overlapping issues were reopened. The competing company had never previously faced the company’s claim, was not a party to the earlier litigation and could not establish real prejudice. The possibility of inconsistent judgments did not itself establish abuse.

Consequential orders were to be addressed at a later hearing.